Whether you’re a seasoned real estate investor or new to the real estate investing game, the biggest question to ask yourself before embarking on a new investment venture is whether you want to be a passive or active investor.
An active real estate investor is typically someone who goes out, does the research, and purchases a property with the intention of leasing it out to a tenant. In contrast, a passive real estate investor is someone who merely provides money to a “sponsor” or syndicate group who handles everything about the real estate investment without you needing to be involved – you just receive a check each month.
At Equity & Help, our unique real estate investment strategy allows you to be as active (or as passive) of an investor as you want to be! Read on as we explore some of the key differences between active and passive real estate investing while also sharing the ways in which Equity & Help allows our investors to define the role they want to play in their investments.
Key Difference #1: Control
When you are an active real estate investor, you are the one calling the shots and making all the decisions. You decide what you want to buy, where you’re purchasing, and how much you’re willing to spend.
But if you are a passive investor, someone else in control. True, they put their experience to work for you – hopefully to your benefit – but you are not the primary decision marker. You may be only one voice among many or you may not have a voice at all.
At Equity & Help, our investors tend to assume a more active role in this regard, at least insofar as to “what” they’re purchasing. We have a list of properties available for you to choose from that we have purchased below market value from the bank. You select one (or several) of the homes on the list and we move forward from there to find a family to purchase your property from you on owner financing.
Key Difference #2: Your Benefits
As an active investor, you own your property. Which means you qualify for some special benefits that may not be available to ordinary homeowners or passive real estate investors.
One of these is the ability to perform a 1031 Exchange. If you own an investment property, you are allowed to sell it and use the profits to purchase one or more similar properties of equal or lesser value while deferring capital gains tax. Passive investors technically aren’t able to perform a 1031 Exchange, though they may be able to use other, similar programs to transfer their assets.
Since active real estate investors own a piece of real property, they can also refinance if they purchased the property with a mortgage. Passive investors cannot refinance.
But both passive and active real estate investors are eligible for other types of tax-saving opportunities if the income from their investment activities qualifies as passive income. Both active and passive investors can have their income classified as passive. And if their income is classified as passive, it is not subject to Social Security and Medicare Taxes – which can result in big savings!
Our real estate investment program generally allows our investors to have the income they earn on their investment properties classified as passive income. However, we encourage you to consult an accountant if you are unsure whether your specific investments with Equity & Help would meet the passive income qualifications.
Key Difference #3: Your Time
It goes without saying that being an active real estate investor will represent a greater time commitment from you. Even if you use a property management company to manage your investment, as you are the one calling the shots, there are still a certain amount of decisions you will need to make. And that’s not counting all the time you need to invest in the beginning to find and close on the property!
Passive real estate investing tends to be a much lower time commitment for the investor. Since you are essentially just funding some of the money the group uses to purchase, manage, and sell the investments, you really don’t have to do much once you’ve vetted the syndicate you’re investing with.
We strive to make things hassle-free for our investors. The way that our investment program is structured offers a very passive experience for our investors. We find and screen potential buyers for your property, sell it to them on your behalf, and manage the property for you. And you make a generous 12-15% cap rate!
However, if you wish to purchase properties from us with the intent to do the repairs yourself and either resell the property or find your own tenant, you can do that as well. The choice is yours!
Key Difference #4: Risk
Active investing is inherently a riskier enterprise, but you do have tremendous upside potential. As sole owner, you take all of the losses – and all of the profits! You can choose which updates to do, which tenants to accept, and most importantly, when to sell and cash out.
In comparison, passive real estate investing is fairly low risk. You are generally tapping into a system (and a group) with proven results. And while no one can predict the future, if you should encounter a loss, you won’t shoulder it alone.
As an investor with Equity & Help, you are the one in control. But we have minimized your risk by allowing you to tap into our proven real estate investment system. We have our $11,000,000 in assets under management with just 3% of those assets in default!
Ready to hear more about how Equity & Help can help you fulfill your goals of being an active or passive real investor? Call us today at (844) 552-8828!